Stock Market Basics – How to Trade Stocks

26 November 2009
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While you’ll hear the term “stock market” tossed around loosely on the news (ie. “The stock market gained 300 points today in brisk action”), as if there was only 1 common market where traders earned their money. In reality, there are stock exchanges all over the world. These exchanges are were buyers and sellers meet to agree on a price for a share of a publicly traded company. These transactions can be carried out on a trading floor, or electronically depending on the stock exchange.

Just like any market, buyers and sellers must agree on a price before the shares trade hands. The value of the shares moves higher if the buyer is willing to pay more. On the other hand, if the seller agrees to a lower price, the value of the shares moves lower. If you have ever seen people haggle over fruits at a farmers market, you get the idea.

Lets have a look at North America’s largest stock exchanges:

New York Stock Exchange

Founded in 1792, “the Big Board” is the where the big boys play. The NYSE is where companies such as Coca-Cola, McDonald’s, General Electric and Wal-Mart all call home. Think of America’s largest companies and odds are, they trade on the NYSE.

Nasdaq

The most popular over-the-counter (OTC) market is the Nasdaq stock exchange. This virtual exchange has no central location or floor brokers as all trading is done through a network of dealers. For years, the largest companies traded on the NYSE, while the second tier stocks traded on all the other exchanges. Thanks to the dot-com boom of the late 1990’s, some of America’s largest firms trade on the Nasdaq, including, Google, Microsoft, Cisco, Intel and Dell.

American Stock Exchange (AMEX)

At one time, the American Stock Exchange used to be the alternative to the NYSE. However, thanks to the Nasdaq’s popularity, its now the alternative to the NYSE. AMEX is home to small cap stocks and derivatives.

Toronto Stock Exchange

Canada’s largest stock market was formed in 1862 and is currently owned by the TSX Group. In addition to publicly traded companies, the exchange also lists various income trusts, investment funds and exchange traded funds (ETF’s). All of Canada’s major publicly traded companies are listed with the TSX including the Royal Bank, Nortel, Canadian Natural Resources and Bell Canada (soon to be going private).

Smaller Canadian firms who have not met the requirements for listing on the TSX trade on the TSX Venture Exchange.

London, Hong Kong, Frankfurt and Malaysia (see KLSE) are among the major cities that host their own stock exchange. While North American markets represent the largest financial hubs, they represent a fraction of the total investment around the world. There are opportunities to trade in every country.

For penny stock traders, the over-the-counter bulletin board (OTCBB) and Pink Sheets is where the action is. These companies typically lack the assets and listing requirements to trade on a larger stock exchange. With little to no regulation, any company that is looking for equity partners can easily find it here. Needless to say, its a very risky venture. While there is temptation to trade penny stocks, learn how to trade first, and only then, invest a small amount of your portfolio in penny stocks.

Investing can be confusing, but we can help with more information on penny stocks, how to trade penny stocks online.